Medical Economics,
July 27, 1998 v75 n14 p60(5)
"Show us the money!" How to make sure your fees are collected.
(techniques for collecting accounts receivables)
Robert L. Lowes.
Abstract: Uncollected accounts receivables can eventually pile up and lead to bankruptcy for medical practitioners. Doctors are advised to keep tabs on their practice's financial reports which can be easily managed with the use of software packages such as Medical Manager or Medic. Proactive steps such as review of monthly financial summaries, tracking adjustments to gross income, assessment of overdue unpaid bills, and utilizing collection agency reports are also recommended.
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A few simple reports can keep you in the know about your accounts receivable. Insist on seeing them.
At many groups, a gnawing uncertainty lurks in the backs of most physicians' minds: How's the office doing with my collections? I hate being so in-the-dark about the dollars.
"The further doctors are removed from day-to-day contact with the business staff, the more worried they become about issues like accounts receivable," says Gray Tuttle Jr., a practice management consultant in Lansing, MI.
What creates that distance between physicians and back-office types? In general, the answer is size. The bigger the group, the more compartmentalized its various functions. Typically, a doctor - who once rode herd on the billing-and-collections staff in his small practice - merges with a larger group and no longer has direct oversight of the practice's financials. He's just a staff doctor in a large beehive now; other people do the collecting. In many cases those collections factor into his pay
formula, yet he knows little about them - the people or the money. So he worries.
And with good reason. Newly merged groups built on the promise of modern business efficiencies sometimes don't deliver. One example: Generations Health Care was a 30-doctor Ob/Gyn group in St. Louis that lived and died in three short years. It disbanded last December, partly because it had done such a poor job of collecting its bills and reporting where its A/R stood.(*)
The questions, then, are how to know what your business office is up to - and how well it's doing. To get answers, you'll need to request specific financial reports. That shouldn't be a problem; the reports are easily produced by such popular software packages as Medical Manager and Medic. This article is about how to analyze those reports.
Keep tabs on bank deposits
"At the very least, you should know what's going to the bank," says Allan DeKaye, a health-care consultant in Oceanside, NY, and author of "The Patient Accounts Management Handbook." "In a group practice, one stockholder should be responsible for reviewing a deposit report - perhaps the deposit slips themselves - on a daily or weekly basis. A steady monitoring of these reports (see Table 1, page 62) lets you detect abnormalities in cash flow.
"Some insurers and Medicare intermediaries mail checks to physicians on a regular schedule, such as once a week," says DeKaye. "If you're monitoring bank deposits, you'll notice if a payer skips a week. It's a safeguard against embezzlement, too."
This report can be expanded to include tallies for gross charges, adjustments, patients seen, and procedures and tests performed.
Get a monthly financial summary
You also want a monthly snapshot of billings and collections. It can come in many formats, depending upon the information you'd like and the financial software you use, but Table 2 (page 62) captures the basics.
First, whittle down gross charges by subtracting insurance discounts as well as other adjustments such as charity care. The result is your adjusted charges, or what Tuttle likes to call collectible charges.
Next, tweak your gross collections by subtracting miscellaneous refunds to patients and insurers. That gives you net collections.
Dividing adjusted charges into net collections yields a net collection rate, an important yardstick for measuring the performance of your billing and collection department. "It's the best measure of office efficiency, because it shows how well you're raking in what's collectible," says Tuttle. "Regardless of your specialty or locale, your net collection rate needs to exceed 95 percent. If it's in the low 90s, your office is doing a poor job."
Assuming that your net collection rate is where it should be, your gross collection rate measures how well third-party payers are treating you. You obtain this rate by dividing gross charges into net collections, which includes insurance discounts - the bulk of your adjustments.
A falling gross collection rate means you need to negotiate better contracts. Alas, that's a tough row to hoe. Worsening insurance discounts and Medicare restrictions drove down the gross collection rate for multispecialty practices from 85.6 percent in 1985 to 71.9 percent in 1996, according to the Medical Group Management Association. Surveyed groups experienced this drop despite boosting their net collection rate from 92.4 to 97 percent in the same period.
Table 1: AnyTown Medical Group
Average daily bank deposits
Bank deposits Aug. 3, 1998 Year to date
Cash $451 $529
Checks 2,374 2,290
Electronic 1,895 1,855
A poor gross collection rate also may suggest that your charges are unrealistically high, notes Cheryl Toth, a practice management consultant with Karen Zupko & Associates. "I've seen gross collection rates for academic group practices as low as 36 percent," she says, "because often they have a fee schedule that far exceeds what any insurer in the market is paying."
Keep in mind that any collection rate, net or gross, for a single month can be misleading. After all, you're comparing one month's worth of charges to money collected on bills that originated not only in the current month, but in preceding months. It's possible to have a net collection rate that exceeds 100 percent if charges drop substantially one month - several doctors take vacations, say - and money from previous months' billings keeps pouting in.
Table 2: AnyTown Medical Group financial summary
Mo. average
Aug. 1998 last 12 mo. Year to date
Gross charges $142,420 $143,316 $1,160,200
Insurance discounts 16,450 16,683 134,600
Other adjustments 2,745 2,537 20,800
Adjusted (collectible) 123,225 124,096 1,004,800
charges
Gross collections 116,890 120,018 972,120
Receipt adjustments 2,094 2,064 15,752
Net collections 114,796 117,954 956,368
Gross collection rate 80.6% 82.3% 82.4%
Net collection rate 93.2% 95.1% 95.2%
Ending A/R 358,773 360,256 358,773
Days in A/R 77 76 75
Source: Gray Tuttle Jr.
So a year-to-date calculation gives you a better fix on the collection rate, because the more months you include, the more you smooth out fluky variations. Better yet, since a year-to-date report in February doesn't tell you much, ask for a rolling, 12-month average of charges and collections.
Your accounts receivable represent all unpaid charges at month's end. Well-run medical practices never let their A/R exceed two to three months' worth of gross charges. The average for multispecialty groups surveyed by the MGMA in 1996 was 2.54 months.
Another way to express this figure is days in A/R, or how long it takes you to get paid on average. Do the math by dividing ending A/R by daily charges (your monthly gross charges multiplied by 12 and divided by 365 days). In the report above, AnyTown Medical Group got paid on average 76 days after a service was rendered, according to the monthly average for the preceding 12 months.
Using standard medical-practice software, you can tailor monthly financial statements to satisfy any statistical craving. How does the current month compare to the same month last year? To what you've projected for the current month? What were the numbers for individual doctors? For individual third-party payers?
Track adjustments to gross income
Finer detail in any statistical area can be very revealing. Consider a monthly financial report about revenue from a particular insurer - AnyState Blue Cross, for example. Now you can track the discounts that carrier helps itself to, and decide whether the contract you signed is as profitable as you thought it would be (see Table 3, page 67).
Alton (IL) Multispecialists itemizes insurance adjustments by third-party payers for each of its 25 doctors every month. Doctors in the same specialty often concentrate on different procedures, and insurers' discounts might vary from procedure to procedure. So not all internists, say, will show the same discount from a particular insurer.
"Doctors want to know where they're getting slashed the most," says Ginger Drone, Alton Multispecialists' executive director. "When you sign a contract, you frequently don't know what your adjustments will amount to because the insurance company won't share its entire fee schedule with you. You have to find out as you go along whether they're discounting you by 10 percent or 20 percent across the board?
Analyze aged accounts receivable
The amount of money owed to your practice also deserves microscopic scrutiny. Aging your accounts receivable is a standard diagnostic technique.
Overall, AnyTown Medical is outperforming its competitors when it comes to collecting bills. Accounts receivable for groups surveyed by the MGMA tend to be older, with A/R older than 120 days constituting 29.1 percent of the total, compared to 15.2 for AnyTown (Table 4).
Consultants pay close attention to A/R older than 90 days, because these accounts are harder to collect. A 75-day-old unpaid bill is just an old bill; 90 days is the threshold at which it becomes a problem - and deserves your attention. Examine the claim itself, as well as the coding, the diagnosis, the appropriateness of the treatment, the dates, everything. Trace the trouble, and if it's not internal, contact the insurer.
"I get alarmed when the 90-day amount exceeds 30 percent of total A/R," says Gray Tuttle, speaking of another threshold. "In some poorly run groups, this figure has been 60 percent."
Cheryl Toth and other consultants also advise that you break down A/R by individual payer, including Medicare and Medicaid, so you can identify the slowpokes and take remedial action. This table complements the monthly financial reports you generate for each payer. AnyState Blue Cross, for example, may be rejecting your claims over some petty coding error, and your collection clerks have been haphazard in correcting and resubmitting claims. That sort of problem would jump out at you from a
report like the one in Table 5 (page 67).
Table 3: AnyState Blue Cross financial summary
Mo. average
Aug. 1998 last 12 mo. Year to date
Gross charges 29,482 $26,119 $202,975
Insurance discounts 2,655 3,503 26,116
As % of gross 9% 13.4% 12.8%
Other adjustments 60 632 4,194
Adjusted charges 26,267 21,984 172,665
Gross collections 24,738 21,128 162,802
Receipt adjustments 1,447 691 3,432
Net collections 23,291 20,437 159,370
Gross collection rate 79.0% 78.2% 78.5%
Net collection rate 88.7% 92.9% 92.3%
Ending A/R 77,636 75,148 77,636
Days in A/R 80 88 93
Table 4: AnyTown Medical Group aged receivables
Aug. 1998 % of total
Total $358,773
0-30 days 133,464 37.2
31-60 84,670 23.6
61-90 days 54,175 15.1
91-120 days 31,931 8.9
[greater than] 120 days 54,533 15.2
[TABULAR DATA FOR TABLE 5 OMITTED]
Toth recommends that groups produce another A/R snapshot that separates what third parties - including Medicare and Medicaid - owe vs. what patients owe. That figure (Table 6) is a barometer of your collection prowess.
The A/R for patients includes deductibles and copayments that they're responsible for, charges for services not covered by insurance, and money owed by the uninsured. "It's harder to collect from patients than insurance companies, so you need to stay on top of your patient MR," says Toth. "If 50 or 60 percent of it is more than 90 days old, your clerical staff is letting you down. Maybe they're not attempting to collect money from patients at the time of the visit. Perhaps they're mailing out
statements, but neglecting to follow up with phone calls. Or it could be they simply aren't turning over old accounts to a collection agency."
Some high-powered software programs enable you to parse your aged A/R in other informative ways. You can, for instance, identify all patients who have more than $1,000 worth of outstanding bills that are at least 90 days old. Your internal bill collectors then can get on the phones and apply their velvet hammers.
[TABULAR DATA FOR TABLE 6 OMITTED]
Table 7: Accounts of AnyTown Medical Group with collection agency
Aug. 1998 Aug. 1997
Percentage of gross billings 2.1% 1.7%
with collection agency
Agency net collections $718 $801
Agency net collection rate 24% 34%
Amount remitted to practice after 40%
agency commission $431 $481
Table 8: Fee-for-service withholds, posted
Aug. 1998 Year to date
AnyState Blue Cross $2,678 $17,433
AnyState Alliance PPO $3,749 24,406
Total 6,427 41,839
Use collection agency reports
Every quarter, each of the 23 doctors at the San Luis Valley Medical Clinics in Alamosa, CO, receives a report showing what percentage of his patient accounts - money owed by individuals - is in the hands of a collection agency (Table 7). "The highest we'll tolerate is 3 percent," says group administrator Gwen Heller. "If it's higher than that, we start asking why we weren't able to collect more of this money ourselves."
An important number to watch is the agency's net collection rate, says Gray Tuttle. "These agencies typically collect about 25 percent of their accounts," he explains. "A collection rate of 50 percent indicates the agency is having too easy a time of it. That tells me the practice's back office turned over accounts that, with a little more effort, it could have collected itself."
Table 9: AnyTown Medical Group revenue from Tiptop HMO
Aug. 1998
Gross capitation revenue $25,412
Less 10% withhold 2,541
Patient copayment 2,011
Net revenue 24,882
Rendered services 23,576
(in terms of equivalent fee-for-service charges)
Revenue realization percentage 106%
Determine withholds under discounted FFS
Keep a running total of monthly withholds under discounted fee-for-service contracts (Table 8, page 71). At refund time, it will tell you whether you've gotten all you deserve, says Cheryl Toth. "Some groups mistakenly treat withholds as write-offs. They accept any amount that's refunded at the end of the year, even when they're entitled to more. Groups should track withholds every month so they know what to expect."
The easiest way to track withholds is to post them when you post the corresponding payments from insurers. Of course, if you fail to meet the insurer's criteria for the return of your withhold - hitting a target for patient bed days, for example - your number crunching is just an accounting exercise. "Withholds are always potential receivables," says Toth.
Track capitation revenue and FFS equivalent charges
Revenue from capitated managed-care contracts doesn't lend itself to traditional financial reports. Primary-care gatekeepers receiving monthly capitation payments for their assigned patients, says Tuttle, don't have receivables other than outstanding copayments. But doctors must track and analyze managed-care revenue to determine whether the contract is profitable. And they should monitor any withholds, too. Table 9 does the job.
The table indicates that AnyTown Medical is coming out ahead under capitation. Tuttle says he's seen doctors under capitation exceed their FFS-equivalent income by 20 percent, and that's not counting withholds returned later on. An end-of-year report, notes Tuttle, should add these withholds as well as capitation and copay receipts, so you can recalculate the revenue realization percentage.
Take advantage of computer technology
If you aren't receiving the kinds of collection data discussed here, your group may be failing to exploit its computer capabilities. "At least half the groups with practice-finance software don't generate the reports they're capable of," says the MGMA's Darrell Schryver. "I know, because when I ask them to send me basic reports for a consult, they'll often say, 'We can't do that.' Or else they produce the report - for the first time ever."
Cheryl Toth says software vendors often don't adequately educate medical groups about their products: "They tell practices only what the practices want to know about a program, instead of all they should know." At the same time, some managers haven't buckled down to master the software. So you should insist they do their homework.
Once you get your hands on billing and collection reports, then what? "If you have a problem with a large or very old A/R," warns Toth, "you're probably looking at a list of small problems that add up to a big chunk of money - a receptionist who doesn't collect copays, clerks who're slow to submit claims, or doctors who make coding mistakes.
"So don't think you can solve things with a wave of the hand, and don't expect instant results. Even when you fix an A/R problem, you don't see the results for 60 to 90 days."
In any case, don't be put off by the complexity of the cure. If you operate without basic collection reports, or if you can't be bothered to monitor the situation ("I just want to practice medicine"), you're forced to trust that your staff is on top of your dollars and cents.
Medicine is no longer in its gravy-train days, when abundant revenue made up for poor collection efficiency. In this era of deep discounts and thin margins, complacency is dangerous. Vigilance literally counts.
* See These Ob/Gyns merged - and then jumped ship," Oct. 13, 1997.
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